Monday, December 17, 2018

Here’s how tax preparers can protect themselves and their clients

Cybercriminals are stepping up their attacks on tax professionals. Because of this, the IRS urges tax preparers to take steps to protect client data and their computer networks from these threats.
Thieves search for client data so they can create a fraudulent tax return that looks legit and might bypass IRS filters. They also impersonate tax professionals, using stolen Electronic Filing Identification Numbers, Preparer Tax Identification Numbers, and Centralized Authorization File numbers.
Here are some basic security steps that tax preparers can take to protect themselves and their clients. Tax preparers should:
  • Learn to recognize phishing emails. They can be on the lookout for emails from thieves pretending to be from the IRS, e-Services, a tax software provider, or cloud storage provider.
  • Never open a link or any attachment from a suspicious email. Remember: The IRS never initiates initial contact with a tax pro via email.
  • Create a data security plan using IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security – The Fundamentals by the National Institute of Standards and Technology.
  • Install anti-malware/anti-virus security software on all devices. This includes laptops, desktops, routers, tablets and phones. They should also consider keeping their software set to automatically update.
  • Create passwords of at least eight characters.
  • Use different passwords for each account.
  • Password protect wireless devices and consider a password manager program.
  • Encrypt all sensitive files and emails.
  • Back up sensitive data to a safe and secure external source not connected fulltime to a network.
  • Wipe clean or destroy old computer hard drives and printers that contain sensitive data.
  • Limit access to taxpayer data to individuals who need to know.
  • Check IRS e-Services account weekly for number of returns filed with EFIN.
  • Report any data theft or data loss to the appropriate IRS Stakeholder Liaison.
  • Stay connected to the IRS through subscriptions to e-News for Tax ProfessionalsQuick Alert, and Social Media.

Tax reform creates opportunity zone tax incentive

Qualified Opportunity Zones were created by the 2017 Tax Cuts and Jobs Act. These zones are designed to spur economic development and job creation in distressed communities throughout the country and U.S. possessions by providing tax benefits to investors who invest eligible capital into these communities. Taxpayers may defer tax on eligible capital gains by making an appropriate investment in a Qualified Opportunity Fund and meeting other requirements.
In the case of an eligible capital gain realized by a partnership, the rules allow either a partnership or its partners to elect deferral. Similar rules apply to other pass-through entities, such as S corporations and its shareholders, as well as estates and trusts and its beneficiaries.

To qualify for deferral:

  • Capital gains must be invested in a QOF within 180 days. 
  • Taxpayer elects deferral on Form 8949 and files with its tax return.
  •  Investment in the QOF must be an equity interest, not a debt interest.
If a taxpayer holds its QOF investment at least five years, the taxpayer may exclude 10 percent of the original deferred gain. If a taxpayer holds its QOF investment for at least seven years, the taxpayer may exclude an additional five percent of the original deferred gain for a total exclusion of 15 percent of the original deferred gain. The original deferred gain – less the amount excluded due to the five and seven year holding periods – is recognized on the earlier of sale or exchange of the investment, or December 31, 2026. If the taxpayer holds the investment in the QOF for at least 10 years, the taxpayer may elect to increase its basis of the QOF investment equal to its fair market value on the date that the QOF investment is sold or exchanged. This may eliminate all or a substantial amount of gain due to appreciation on the QOF investment.

Tax reform brings changes to qualified moving expenses

For businesses that have employees, there are changes to fringe benefits that can affect a business’s bottom line and their employee’s tax liabilities. One of these changes is to qualified moving expenses.
Under previous law, payment or reimbursement of an employee’s qualified moving expenses were not subject to income or employment taxes.
Under last year’s tax reform legislation, employers must include all moving expenses, in employees’ wages, subject to income and employment taxes.

Exception

Generally, members of the U.S. Armed Forces can still exclude qualified moving expense reimbursements from their income if:
  • They are on active duty
  • They move pursuant to a military order and incident to a permanent change of station
  • The moving expenses would qualify as a deduction if the employee didn’t get a reimbursement

Transition rule

There is a transition rule under the new law. Under this rule, certain payments or reimbursements aren’t subject to federal income or employment taxes. This includes amounts that:
  • An employer pays a third party in 2018 for qualified moving services provided to an employee prior to 2018.  
  • An employer reimburses an employee in 2018 for qualified moving expenses incurred prior to 2018. 
To qualify for the transition rule, the payments or reimbursements must be for qualified expenses which would have been deductible by the employee if the employee had directly paid them before Jan. 1, 2018. The employee must not have deducted them in 2017.

Corrections

Employers who have included amounts covered by the exception or the transition rule in individuals’ wages or compensation can take steps to correct taxable wages and employment taxes. 

More information:

Taxpayers can now instantly get tax info on Instagram

Taxpayers can now get tax tips and helpful news from the IRS on Instagram. The agency just debuted it’s official Instagram account, IRSNews, which users can access at www.instagram.com/irsnews or on their smartphone using the Instagram app.
The IRS will use its new Instagram account it to:
  • Provide the latest tax scam information to help taxpayers keep their personal data secure.
  • Better serve young adults, the majority of whom use Instagram.
  • Share information in Spanish and other languages. 
  • Reinforce messages the IRS promotes on its other social accounts.
The IRS will use Instagram along with several other social media tools to communicate with taxpayers:
The IRS also has their own app, IRS2Go. Taxpayers can use this free mobile app to check their refund status, pay taxes, find free tax help, watch IRS YouTube videos and get IRS Tax Tips by email. Like Instagram, the IRS2Go app is available from the Google Play Store for Android devices, or from the Apple App Store for Apple devices. IRS2Go is available in both English and Spanish.

Businesses can visit IRS.gov to find out how tax reform affects their bottom line

Business may find they have questions about how 2017’s tax reform legislation affects their organization and their bottom line. IRS.gov is a great place to find answers. Here are several pages on the IRS website that address tax reform. Businesses can bookmark these pages and check back often, as the IRS regularly updates them with new information.

Tax reform provisions that affect businesses

This is the main page for businesses. Users can link from this page out to more resources with additional information, which is organized in sections by topic. These sections include a plain language description and links to news releases, notices and other technical guidance. Here are a few of the main tax topics on this page and the subtopics highlighted in each section:
  • Income: taxation of foreign income, carried interest, and like-kind exchanges
  • Deductions and depreciation: fringe benefits, moving expenses, standard mileage rates, deduction for passthrough businesses, and business interest expenses
  • Credits: employer credit for paid family and medical leave, and the rehabilitation tax credit
  • Taxes: blended federal income tax and withholding
  • Accounting method changes
  • Opportunity zones
This page also includes information for specific industries, such as farming, insurance companies, and aircraft management services.

Tax reform resources

From this page, people can link to helpful products including news releases, tax reform tax tips, revenue procedures, fact sheets, FAQs and drop-in articles. Organizations can share these materials including the drop-in articles with employees, customers and volunteers to help them better understand tax reform.

Tax Cuts and Jobs Act: A comparison for businesses

This side-by-side comparison can help businesses understand the changes the new law made to previous law. It will help businesses then make decisions and plan accordingly. It covers changes to deductions, depreciation, expensing, tax credits, and other tax items that affect businesses.

Monday, November 12, 2018

Tax reform changes to depreciation deduction affect farmers’ bottom line

Last year’s Tax Cuts and Jobs Act made changes to how farmers and ranchers depreciate their farming business property. 
Depreciation is an annual income tax deduction. It allows a taxpayer to recover the cost or other basis of certain property over the time that they use it. When figuring depreciation, taxpayers consider wear and tear, and deterioration of the property, as well as whether it’s now obsolete.
Here is information about how the tax law changes to depreciation affect farmers and their bottom line:
  • New farming equipment and machinery is five-year property. This means that for property placed in service after Dec. 31, 2017, the recovery period is shortened from seven to five years for machinery and equipment. 
  • The shorter recovery period does not apply to grain bins, cotton ginning equipment, fences and other land improvements. 
  • Used equipment remains seven-year property.
  • The 150-percent declining balance method is not required for property used in a farming business and placed in service after Dec. 31, 2017. Farmers and ranchers must continue to use the 150-percent declining balance method for property that is 15 or 20 years old to which the straight-line method does not apply and for property that the taxpayer elects. 
  • New and certain used equipment acquired and placed in service after September 27, 2017, qualifies for 100 percent first-year bonus depreciation for the tax year in which the property is placed in service. 
  • A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. The new law increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation.
  • The new law increases the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017. The bonus depreciation percentage for qualified property that a taxpayer acquired and placed in service before Sept. 28, 2017 remains at 50 percent. Special rules apply for longer production period property and certain aircraft.
  • The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after Sept. 27, 2017, if several factors are met.
  • Farming businesses that elect out of the interest deduction limit must use the alternative depreciation system to depreciate any property with a recovery period of 10 years or more. This is property such as single purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings and certain land improvements. This provision applies starting in tax year 2018.

New IRS publication helps taxpayers Get Ready for tax reform

The IRS issued a new publication to help taxpayers learn about tax reform and how it affects their taxes. Taxpayers can access Publication 5307, Tax Reform Basics for Individuals and Families, on IRS.gov/getready.
While last year’s Tax Cuts and Jobs Act includes tax changes for both individuals and businesses, this publication is specifically geared to individual taxpayers. It breaks down the law in easy-to-understand language. The publication highlights the changes that taxpayers will see on their 2018 federal tax returns they file in 2019.
This new publication provides important information about:
  • Increasing the standard deduction
  • Suspending personal exemptions
  • Increasing the child tax credit
  • Adding a new credit for other dependents
  • Limiting or discontinuing certain deductions
Taxpayers can also go to IRS.gov/getready to find other information about tax reform. This includes the steps taxpayers can take now to help make filing their taxes smoother next year. Following these steps will also help taxpayers avoid surprises when they file their returns.

Here’s how tax reform changed accounting methods for small businesses

The Tax Cuts and Jobs Acts – better known simply as tax reform – allows more small business taxpayers to use the cash method of accounting. Tax reform now defines a small business taxpayer as a taxpayer that has average annual gross receipts of $25 million or less for the three prior tax years and is not a tax shelter.
Here’s how last year’s legislation changed the rules for small business taxpayers. The law:
  • Expands the number of small business taxpayers eligible to use the cash method of accounting by increasing the average annual gross receipts threshold from $5 million to $25 million, indexed for inflation.
  • Allows small business taxpayers with average annual gross receipts of $25 million or less for the three prior tax years to use the cash method of accounting.
  • Exempts small business taxpayers from certain accounting rules for inventories, cost capitalization and long-term contracts.
  • Allows more small business taxpayers to use the cash method of accounting for tax years beginning after Dec. 31, 2017.
Revenue Procedure 2018-40 provides the procedures that a small business taxpayer may use to obtain automatic consent to change its methods of accounting to reflect these statutory changes.

After tax reform, many corporations will pay blended tax rate

Last year’s tax reform legislation replaced the graduated corporate tax structure with a flat 21 percent corporate tax rate. This new maximum tax rate for corporations is effective for tax years beginning after Dec. 31, 2017.
A corporation with a fiscal year that includes Jan. 1, 2018, will pay federal income tax using what is called a blended tax rate. They will not use the flat 21 percent tax rate for their entire fiscal year. To calculate their blended tax rate, these corporations will:
  • First calculate their tax for the entire taxable year using the tax rates that were in effect prior to the Tax Cuts and Jobs Act.
     
  • Then calculate their tax using the new 21 percent rate.
     
  • Proportion each tax amount based on the number of days in the taxable year when the different rates were in effect.
     
  • Take the sum of these two amounts, which is the corporation’s federal income tax for the fiscal year.
The blended rate applies to all fiscal year corporations whose fiscal year includes Jan. 1, 2018.  Fiscal year corporations that have already filed their federal income tax returns that do not reflect the blended rate may want to consider filing an amended return.
This change will affect many tax forms and instructions that corporations use. For a complete list, see the 2017 Fiscal Tax Year Filers Must Use Blended Corporate Tax Rates page on IRS.gov.

Taxpayers who have an ITIN set to expire should renew it ASAP

Taxpayers with expiring Individual Taxpayer Identification Numbers should submit their renewal applications as soon as possible. Failing to renew them by the end of this year will cause refund and processing delays in 2019.
ITINs are used by people who have tax filing requirements under U.S. law but are not eligible for a Social Security number. The IRS mailed more than 1.3 million letters to taxpayer households that includes someone with an ITIN to remind them to renew. Here are details about whose ITINs are expiring and how someone renews their ITIN.
  • ITINs that expire at the end of this year have middle digits 73, 74, 75,76, 77, 81 and 82 – for example: 9NN-73-NNNN
  • Those who must renew their ITIN can choose to renew their family’s ITINs together, even if family members have an ITIN with middle digits other than 73, 74, 75, 76, 77, 81 or 82. Family members include the tax filer, spouse and any dependents claimed on the tax return.
  • Taxpayers with ITINs set to expire at the end of the year with a need to file a tax return in 2019 must submit a renewal application. Others do not need to take any action.
  • Taxpayers whose ITINs expired due to lack of use should only renew their ITIN if they have a filing requirement in 2019.
  • To renew an ITIN, taxpayers must complete a Form W-7 and submit all required documentation.
  • Although a tax return is normally attached to the Form W-7, a taxpayer is not required to attach a return to ITIN renewal applications when renewing early.
  • There are three ways to submit the W-7 application package. A taxpayer can:
    • Mail the Form W-7, along with original identification documents or copies certified by the issuing agency, to the IRS address listed on the Form W-7 instructions.
    • Work with Certifying Acceptance Agents authorized by the IRS to help them apply for an ITIN.
    • Call and make an appointment at a designated IRS Taxpayer Assistance Center instead of mailing original identification documents to the IRS. When making an appointment, the taxpayer should let the telephone assistor know the visit involves an ITIN renewal application.
In addition to English and Spanish, ITIN materials are available in Chinese, Korean, Haitian Creole, Russian and Vietnamese.

Monday, October 8, 2018

Combat-injured disabled veterans may be due a refund

The IRS is alerting certain veterans that they may be due a credit or refund. This is a result of the Combat-Injured Veterans Tax Fairness Act passed in 2016. It affects veterans who received disability severance payments after January 17, 1991, and included that payment as income.
Here is what these veterans should know:
  • Veterans who included their disability severance payments as income should file Form 1040X, Amended U.S. Individual Income Tax Return.
  • The veterans will file Form 1040X to claim a credit or refund of the overpayment attributable to the disability severance payment.
  • These veterans received a one-time, lump-sum disability severance payment when they separated from their military service.
  • Most of these veterans will have recently received a letter from the Department of Defense with information explaining how they should claim the related tax refunds.
  • Veterans can submit a claim based on the actual amount of their disability severance payment. However, there is a simplified method where veterans can instead choose to claim a standard refund amount. This amount is based on the calendar year in which they received the severance payment:
    • $1,750 for tax years 1991 – 2005
    • $2,400 for tax years 2006 – 2010
    • $3,200 for tax years 2011 – 2016
  • Claiming the standard refund amount is the easiest way for veterans to claim a refund, because they do not need to access the original tax return from the year of their lump-sum disability severance payment.
  • The veteran must mail the claim generally by the later of these dates:
    • One year from the date of the Department of Defense notice
    • Three years after the due date for filing the original return for the year the disability severance payment was made
    • Two years after tax was paid for the year the disability severance payment was made.

Organizations around the country looking for volunteers to help taxpayers

The IRS and its community partners are looking for people around the country to become IRS-certified volunteers at their free tax preparation sites. Volunteers can start now to join one of these programs that offer invaluable help to America’s taxpayers:
  • Volunteer Income Tax Assistance: VITA offers free tax return preparation to eligible taxpayers who generally earn $55,000 or less.
  • Tax Counseling for the Elderly: TCE is mainly for people age 60 or older. Although the program focuses on tax issues unique to seniors, all taxpayers can generally get assistance. AARP participates in the TCE program through AARP Tax-Aide.
Last year, VITA and TCE volunteers prepared more than 3.5 million federal tax returns for qualified taxpayers at no cost. Anyone interested in volunteering can visit the sign-up page on IRS.gov.
Many volunteers return to the program year after year. Here are several reasons why:
  • Volunteers can work flexible hours. Volunteers can generally choose their own hours and days to volunteer. The programs are usually open from mid-to-late-January through the tax filing deadline in April. Some sites are even open all year.
  • VITA and TCE sites are often close to home. More than 11,000 sites were set up in neighborhoods all over the country for 2018. These free tax help sites are in places like community centers, libraries, schools and shopping malls.
  • No prior experience needed. Volunteers receive specialized training to become IRS-certified and can choose from a variety of roles to serve. VITA and TCE programs want volunteers of all backgrounds and ages, as well as individuals who are fluent in other languages.
  • The IRS provides free tax law training and materials. Volunteers receive training materials at no charge. The tax law training covers how to prepare basic federal tax returns electronically. The training also covers tax topics like deductions and credits.
  • Tax pros can earn continuing education credits. Enrolled agents and non-credentialed tax return preparers can earn continuing education credits when volunteering as a VITA/TCE instructor, quality reviewer or tax return preparer.


New credit benefits employers who provide paid family and medical leave

Eligible employers who provide paid family and medical leave to their employees during tax years 2018 and 2019 might qualify for a new business tax credit. This new employer credit for family and medical leave is part of tax reform legislation passed in December 2017. Here are some facts about the credit to help employers find out if they might be able to claim it.

To be eligible, an employer must:

  • Have a written policy that meets several requirements, as detailed in Notice 2018-xx [ADD LINK].
  • Provide:
    • At least two weeks of paid family and medical leave to full-time employees.
    • A prorated amount of paid leave for part-time employees.
  • Provide pay for leave that is at least 50 percent of the wages normally paid to that employee.

The credit applies to these dates:

  • It is available for wages paid in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2020.

The amount of the credit:

  • The credit is generally equal to 12.5 to 25 percent of paid family and medical leave for qualifying employees.

Here’s what kind of leave qualifies:

  • The leave can be for any or all of the reasons specified in the Family and Medical Leave Act:
    • Birth of an employee’s child.
    • Care for the child.
    • Placement of a child with the employee for adoption or foster care.
    • To care for the employee’s spouse, child, or parent who has a serious health condition.
    • A serious health condition that makes the employee unable to perform the functions of his or her position.
    • Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty – or having been notified of an impending call or order to covered active duty – in the Armed Forces. 
    • To care for a service member who is the employee’s spouse, child, parent, or next of kin.
  • However, leave paid by a state or local government, or that is required to be provided by state or local law, does not count toward the 50 percent.

Some employers are eligible to claim the credit retroactively to the beginning of their taxable year:

  • Normally employers can only claim the credit based on eligible leave taken after their new or amended policy goes into effect.
  • Read Notice 2018-71 for a description of special rules for when an employer can claim the credit retroactively.

To claim the credit, employers will:

  • Attach Form 8994 to their return. The IRS expects to have this new form available later in 2018.

The Notice sets out special rules and limitations that apply:

  • For example, only paid family and medical leave provided to employees whose prior-year compensation was at or below a certain amount qualify for the credit.
    • Generally, for tax-year 2018, the employee’s 2017 compensation from the employer must be $72,000 or less.

Tax preparers should look out for these signs that a criminal stole information

Tax professionals should be alert to the subtle signs of data theft. The IRS and its Security Summit partners note that there are many cases where preparers are victims of theft and don’t even know it.
Cybercriminals often leave very few signs of their intrusion. A tax preparer might not even realize that the cybercriminal stole client data until a fraudulent tax return was filed with the information, and their client becomes an ID theft victim. This is one more reason tax professionals should use strong security protections to prevent data theft from occurring.
Here are some warning signs that a preparer’s office may have experienced a data theft:
  • Client e-filed returns that were filed electronically begin to be rejected by the IRS. The reason given is that someone already filed a tax return with the same Social Security number.
     
  • Clients who haven’t filed tax returns begin to receive taxpayer authentication letters from the IRS. These letters include the 5071C, 4883C and 5747C.
     
  • Clients who haven’t filed tax returns receive refunds.
     
  • Clients receive tax transcripts that they did not request.
     
  • Clients who created an IRS online services account receive an IRS notice that their account was accessed. They might also receive an IRS email saying their account has been disabled.
     
  • Clients unexpectedly receive an IRS notice that an online account was created in their names.
     
  • The number of returns filed with the tax professional’s Electronic Filing Identification Number exceeds their number of clients.
     
  • Tax professionals or clients are responding to emails that the firm did not send or does not remember sending.
     
  • Network computers are running slower than normal.
     
  • Computer cursors moving or changing numbers without someone touching the keyboard.
     
  • Network computers lock out employees.
The IRS and its partners in the Security Summit are alerting tax preparers about the signs of an ID theft as part of the Tax Security 101 awareness initiative. The goal is to provide tax professionals with the basic information they need to better protect taxpayer data and to help prevent the filing of fraudulent tax returns.

Here are facts to help taxpayers understand the different filing statuses

Taxpayers don’t typically think about their filing status until they file their taxes. However, a taxpayer’s status could change during the year, so it’s always a good time for a taxpayer to learn about  the different filing statuses and which one they should use.
It’s important a taxpayer uses the right filing status because it can affect the amount of tax they owe for the year. It may even determine if they must file a tax return at all. Taxpayers should keep in mind that their marital status on Dec. 31 is their status for the whole year.
Sometimes more than one filing status may apply to taxpayers. When that happens, taxpayers should choose the one that allows them to pay the least amount of tax.
Here’s a list of the five filing statuses and a description of who claims them:
  • Single. Normally this status is for taxpayers who aren’t married, or who are divorced or legally separated under state law.
  • Married Filing Jointly. If taxpayers are married, they can file a joint tax return. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
  • Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit them if it results in less tax owed than if they file a joint tax return. Taxpayers may want to prepare their taxes both ways before they choose. They can also use this status if each wants to be responsible only for their own tax.
  • Head of Household. In most cases, this status applies to a taxpayer who is not married, but there are some special rules. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person. Taxpayers should check all the rules and make sure they qualify to use this status.
  • Qualifying Widow(er) with Dependent Child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

Sunday, September 2, 2018

Six things for extension filers to remember

Oct. 15 is almost here, and it’s the last day to file for most people who requested an automatic six-month extension for their 2017 tax returns. These taxpayers should remember that they can file any time before Oct. 15 if they have all their required tax documents. They can also pay their tax bill in full, or make a partial payment, anytime, by visiting IRS.gov/payments.
As extension filers prepare to file, here are some things they should know:
  • They can still use IRS Free File. Nearly everyone can e-file their tax return for free through IRS Free File. The program is available on IRS.gov now through Oct. 15. IRS e-file is easy, safe and the most accurate way for people to file their taxes. E-file also helps people get all the tax benefits they’re entitled to claim.
  •  A refund may be waiting. Anyone due a refund should file as soon as possible to get their money. The sooner someone files, the sooner they’ll get it. Don’t forget to use Direct Deposit. It is the best and fastest way for taxpayers to get their tax refund electronically deposited for free into their financial account. 
  • They should consider IRS Direct Pay. Taxpayers who owe taxes can pay them with IRS Direct Pay. It’s the simple, quick and free way to pay from a checking or savings account. Taxpayers can just click on the ‘Pay’ at IRS.gov.
  • Here’s what taxpayers should do about a missed deadline. Anyone who did not request an extension by this year’s April 17 deadline should file and pay as soon as possible. This will stop additional interest and penalties from adding up. IRS Direct Pay offers a free, secure and easy way to pay taxes directly from a checking or savings account. There is no penalty for filing a late return for people who are due a refund. 
  • Taxpayers should remember the Oct. 15 Deadline. Taxpayers who aren’t ready to file yet should remember to file by Oct. 15 to avoid a failure-to-file penalty. Taxpayers who owe and can’t pay their balance in full should pay as much as they can to reduce interest and penalties for late payment. They can use the Online Payment Agreement tool to apply for more time to pay or set up an installment agreement. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty.
  • More Time for the Military.  Members of the military and others serving in a combat zone get more time to file. These taxpayers typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.

Tax preparers should encrypt client data

To help protect their clients’ data from cyberthieves, tax preparers should consider encrypting all sensitive data. In fact, encryption protocols should be standard features of any data security plan that must be created by all professional tax return preparers, which is required by the Federal Trade Commission and its Safeguards Rule.

Here are a few basic steps for tax preparers to consider about encryption. These will help protect client data stored on computer systems. Preparers should:
  • Use drive encryption to lock all files on computers and on all devices. Drive or disk encryption often is a stand-alone software product. It converts text in files into an unreadable format for anyone who makes an unauthorized access. Entering the password unlocks the files for legitimate users.
  • Backup encrypted copies of client data to external hard drives or use cloud storage. If using external drives, preparers should keep them in a secure location. If choosing cloud storage, they should encrypt the data before uploading to the cloud.
  • Avoid attaching USB drives and external drives with client data to public computers.
  • Avoid installing unnecessary software or applications to the business network.
  • Avoid offers for “free” software, especially security software. This is often a ruse by criminals.
  • Download software or applications only from official sites.
  • Perform an inventory of devices where clients’ tax data are stored, such as laptops, smart phones, tablets and external hard drives.
  • Take an inventory of software used to process or send tax data, such as systems, browsers, applications, tax software and web sites.
  • Limit or disable internet access capabilities for devices that have stored taxpayer data.
  • Delete all information from devices, hard drives, flash drives, printers, tablets or phones before disposing of devices.
  • Physically destroy hard drives, tapes, USBs, CDs, tablets or phones by crushing, shredding or burning.
  • Shred or burn all documents containing taxpayer information before throwing them away.
The IRS and its partners in the Security Summit are reminding preparers about the importance of strong passwords as part of the Tax Security 101 awareness initiative. This is intended to provide tax professionals with the basic information they need to better protect taxpayer data and to help prevent the filing of fraudulent tax returns.

Taxpayers should be prepared for natural disasters

With hurricane season underway, it’s a good idea for taxpayers to think about what they can do to be prepared should a hurricane or other natural disaster strike where they live. Here are a few helpful tips for taxpayers to keep in mind.

The IRS can help

In the case of a federally declared disaster, taxpayers can call 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.

Get a copy of a tax return

Taxpayers who need a copy of their prior-year tax return have several options. If they:
  • Went to a paid preparer, they might be able to get a copy of last year’s tax return from that preparer.
  • Used the same tax preparation software this year that they used last year, that software will likely have their prior-year tax return.
  • Didn’t use the same tax preparation software this year, they may be able to return to their prior-year software and view an electronic copy of that return.

Get a Transcript

Taxpayers who are unable to access prior-year tax return using the above methods can get a copy of their transcript by going to IRS.gov and using the Get Transcript application. By selecting “Get Transcript Online,” the taxpayer can immediately view, print or download their transcript. If they prefer to have a copy sent to the address that the IRS has on file, they can select "Get Transcript by Mail." They should receive their transcript in the mail in five to 10 days from the time the IRS receives their request online.

Update emergency plans

Because a disaster can strike any time, taxpayers should review emergency plans annually. Personal and business situations change over time, as do preparedness needs. When employers hire new employees or when a company or organization changes functions, they should update plans accordingly. They should also tell employees about the changes.
Individuals and businesses should make plans ahead of time and be sure to practice them.

Create electronic copies of key documents

Taxpayers should keep a duplicate set of key documents in a safe place, such as in a waterproof container and away from the original set. Key documents includes bank statements, tax returns, identification documents and insurance policies.
Doing so is easier now that many financial institutions provide statements and documents electronically, and financial information is available on the Internet. Even if the original documents are provided only on paper, these can be scanned into a computer. This way, the taxpayer can download them to a storage device like an external hard drive or USB flash drive.

Document valuables

It’s a good idea for a taxpayer to photograph or videotape the contents of their home, especially items of higher value. Documenting these items ahead of time will make it easier to claim any available insurance and tax benefits after the disaster strikes.

Following new rules for strong passwords helps preparers protect data

Tax professionals should remember to use strong passwords on their accounts. This will help protect their clients’ data from cyberthieves.
Cybersecurity experts’ recommendations on what constitutes a strong password has recently changed. Here are some of the latest tips for tax professionals to follow when creating passwords to help keep data secure. They should:
  • Opt for a multi-factor authentication process when available. Many email providers now offer customers two-factor authentication protections to access email accounts.
  • Use word phrases that are easy to remember rather than random letters, characters and numbers that are harder to remember. By using a phrase, preparers don’t have to write down the password, which exposes it to more risk.
  • Use strong, unique passwords for all accounts, whether it’s to access a device, tax software products, cloud storage, wireless networks or encryption technology.
  • Use a minimum of eight characters; longer is better.
  • Use a combination of letters, numbers and symbols; something like SomethingYouCanRemember@30!
  • Avoid personal information or common passwords.
  • Change default and temporary passwords that come with accounts or devices.
  • Not reuse passwords. For example, changing Bgood!17 to Bgood!18 is not good enough.
  • Not use email addresses as usernames.
  • Store any password list in a secure location, such as a safe or locked file cabinet.
  • Not disclose passwords to anyone for any reason.
  • Use a password manager program to track passwords, but protect it with a strong password.
The IRS and its partners in the Security Summit are reminding preparers about the importance of strong passwords as part of the Tax Security 101 awareness initiative. This is intended to provide tax professionals with the basic information they need to better protect taxpayer data and to help prevent the filing of fraudulent tax returns.

Here’s what taxpayers do when they have to file a new W-4

The IRS reminds taxpayers to look into whether they need to adjust their paycheck withholding. Taxpayers who do need to adjust their withholding should submit a new Form W-4, Employee’s Withholding Allowance Certificate to their employers. Taxpayers can use the updated Withholding Calculator on IRS.gov to do a quick “paycheck checkup” to check that they’re not having too little or too much tax withheld at work.Among the groups who should check their withholding are:

  • Two-income families
  • People working two or more jobs or who only work for part of the year
  • People with children who claim credits such as the Child Tax Credit
  • People with older dependents, including children age 17 or older
  • People who itemized deductions on their 2017 tax return
  • People with high incomes and more complex tax returns
  • People with large tax refunds or large tax bills for 2017
Here are a few things for taxpayers to remember about updating Form W-4:
  • The Withholding Calculator will help determine if they should complete a new Form W-4.
  • The calculator will help users determine the information to put on a new Form W-4.
  • Taxpayers who use the calculator to check their withholding will save time because they don’t need to complete the Form W-4 worksheets. The calculator does the worksheet calculations.
  • Taxpayers who complete new Form W-4s should submit it to their employers as soon as possible. With withholding occurring throughout the year, it’s better to take this step sooner, rather than later.
As a general rule, the fewer withholding allowances a taxpayer enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 instructs an employer to withhold more tax. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.
Employees who have too little withheld are not paying enough taxes throughout the year, and they may face an unexpected tax bill or penalty when they file next year. People who have too much tax withheld will get less money in their regular paycheck. If those taxpayers change their withholding and enter more allowances on Form W-4, they’ll get more money in their paychecks throughout the year.
Having a completed 2017 tax return and their most recent pay stub can help taxpayers work with the Withholding Calculator to determine their proper withholding for 2018 and avoid issues when they file next year.

Taxpayers may also need to determine if they should make adjustments to their state or local withholding. They can contact their state's department of revenue to learn more.

Friday, August 3, 2018

Resources on IRS.gov help all taxpayers understand tax reform

IRS.gov is a great place for taxpayers to visit when they have questions about the Tax Cuts and Jobs Act. The legislation, which was passed late last year, includes changes to many areas of the tax law. Here are some of the resources on IRS.gov that will help individual taxpayers, businesses and the tax community understand the law and its effect on their taxes:
  • Tax Reform Web Page. The Tax Reform page highlights what taxpayers need to know about the tax law changes and how these changes affect them. This page also links taxpayers and tax professionals to news releases, tax tips, publications, notices, and legal guidance related to the legislation.
     
  • Updated Withholding Calculator. The IRS encourages everyone to use the Withholding Calculator to perform a “Paycheck Checkup,” which is even more important this year because of the tax law changes. The calculator helps taxpayers determine if they’re having the right amount of tax withheld from their paychecks.
     
  • Updated Form W-4, Employee’s Withholding Allowance Certificate. Taxpayers who determine they need to make changes to their withholding can complete a  Form W-4, which reflects the tax law changes. Employees will submit the completed Form W-4 to their employers.
     
  • Frequently Asked Questions. The IRS posted new FAQs to help people understand how to use the Withholding Calculatorand the changes to the Withholding Tables.

More information about the tax law changes will be coming throughout the year. IRS.gov will be updated to reflect changes as they develop.
 

Tax Security 101: tax preparers should take these steps to protect data

The IRS and its Security Summit partners launched a summertime campaign to remind tax professionals about the importance of data security. This effort is called "Protect Your Clients; Protect Yourself: Tax Security 101."
The IRS released a new, expanded guide with critical steps that tax preparers can take to protect client data. This campaign is intended to provide tax professionals with the basic information they need to better protect taxpayer data and to help prevent the filing of fraudulent tax returns.
Here are some of the steps highlighted as part of Tax Security 101. Tax preparers should:
  • Learn to recognize phishing emails, especially those pretending to be from the IRS, a tax software provider, cloud storage provider or state tax agencies. Never open a link or any attachment from a suspicious email.
  • Create a data security plan using IRS Publication 4557, Safeguarding Taxpayer Data, and Small Business Information Security – The Fundamentals, by the National Institute of Standards and Technology.
  • Review internal controls for their business. Preparers should: 
    • Install anti-malware and anti-virus security software on all devices, such as laptops, desktops, routers, tablets and phones. Keep software set to automatically update.
    • Create passwords of at least eight characters; longer is better. Use different passwords for each account, use special and alphanumeric characters, use phrases, password protect wireless devices and consider a password manager program.
    • Encrypt all sensitive files and emails using strong password protections.
    • Back up sensitive data to a safe and secure external source not connected full time to a network.
    • Wipe clean or destroy old computer hard drives and printers that contain sensitive data.
    • Limit access of taxpayer data to individuals who need to know.
    • Check IRS e-Services account weekly for number of returns filed with EFIN.
  • Report any data theft or data loss to the appropriate IRS Stakeholder Liaison.
  • Stay connected to the IRS through subscriptions to e-News for Tax ProfessionalsQuick Alerts and Social Media.